Social Security to go broke a year earlier than expected, report finds

WASHINGTON—Social Security will go into the red in 2017 and its trust fund will be exhausted by 2041, a year sooner than estimated a year ago, trustees for the system said Wednesday in an annual report.

The report also pushed back by one year, to 2020, the projected insolvency date for Medicare, the government health-insurance program for the elderly and people with disabilities. It said Medicare would surpass Social Security as the government's most expensive nondefense program by 2024.

The report broke little new ground, but partisans on both sides seized on it as new evidence for or against drastic changes in Social Security.

"Clearly, the system needs to be fixed," Treasury Secretary John Snow said, pointing to a projected $4 trillion funding shortfall by 2080. He's the chairman of the six-member board of trustees for both programs.

Democrats pounced on the report's numbers, saying they contradict President Bush's contention that Social Security faces a crisis.

"Today's report confirms that the so-called Social Security crisis exists in one place: the minds of Republicans," said Sen. Harry Reid of Nevada, the top Democrat in the Senate. "In reality, the program is on solid ground for decades to come."

That wasn't exactly the conclusion of Social Security's actuaries. They now project that in 2017—a year earlier than they thought last year—more money will start to flow out of Social Security in retirement benefits than will come in from wage taxes. By 2041, the Social Security trust fund will be exhausted and, absent changes, the government then could pay only 74 percent of promised benefits from annual wage taxes, the actuaries said. Last year they put it at 73 percent in 2042.

"The program faces a significant long-term funding shortfall that must be addressed, but it is not in the midst of a deep structural crisis that requires drastic changes. And nothing in the new report indicates that replacing part of Social Security with private accounts, as the administration has proposed, would be useful; the president's private accounts would do nothing to close the shortfall," said Robert Greenstein, the executive director of the Center on Budget and Policy Priorities, a liberal research group.

Actuaries cautioned against reading too much into one year's changes. Five years ago they thought the system would go into deficit in 2015 and that the trust fund would be exhausted by 2037.

"The long-term picture for Social Security is actually better than in my first trustees' report in 1997," said Kenneth Apfel, the head of the Social Security Administration from 1997 to 2001. He cautioned that "the further out in time you project, the more speculative the numbers become."

Medicare's problems have received less public attention than the intense Social Security debate, but rising health-care costs make Medicare's financial woes worse and more immediate, said Gail Wilensky, Medicare's administrator from 1990 to 1992. She's now a senior fellow at Project HOPE, a health-research organization.

In 2000, trustees projected that Medicare's Hospital Insurance trust fund, which pays primarily for inpatient care, would go into debt in 2010, but it happened last year. The trustees' report Wednesday moved forward by five years, to 2020, the date that the Hospital Insurance trust fund will be exhausted.

Also approaching crisis is Medicare's Supplementary Medical Insurance trust fund, which pays for physician and outpatient care and a new prescription-drug benefit beginning in 2006. Trustees reported that SMI costs as a percentage of the national economy could quadruple over the next 30 years, requiring higher premiums from seniors.

"It will mean digging into our pockets and paying taxes if we want to keep anything like this going over time," said Marilyn Moon, a senior researcher at the centrist Urban Institute in Washington.